Discussion in Lithuania: The future of Baltics’ private equity and venture capital markets

The venture capitalists of Baltics gathered in Lithuania at the end of August in order to discuss the developing opportunities. “VCA’s symposium” that took place for the third time was represented from Estonia’s side with Aare Tammemäe, the chairman of the board, FinanceEstonia.

The host of the symposium was Lithuanian Private Equity and Venture Capital Association. All together there were more than 120 participants from the Baltics, Israel, Great Britain, Poland and elsewhere. The purpose of the event was to share best practices with others and to discuss possibilities for collaboration.

What was the event’s main message?

Venture capitalists and angel investors are in a pretty good situation in the Baltics. For instance there is Baltics Innovation Fund (BIF) created by Estonian, Latvian, Lithuanian and European Investment Fund (EIF). BIF is investing into local growing enterprises through the Baltics. The VCA’s showed that important European investors are interested in our markets and they are hoping to strengthen the bond with the Baltic States.

Also, several major local trust funds alleged their positive view towards local markets. They confirmed their willingness to reconsider investment allocations. As an example Swedbank has a special team in Baltics for making investment decisions related to investment funds. It is a strong message and now all we can do is count on the real steps.

What should Estonia and other Baltic States learn from Israel experience?

The representatives talked about the importance of developing the venture capital industry and involving foreign investors maximally. In Israel the priority is to develop the military industry. It means that they have a lot of start-ups and small businesses related to military industry. The state has created all conditions to involve investors in it. For instance a number of USA’s venture capital enterprises own branch offices in Israel where the task is to monitor and evaluate starting enterprises. In short: the state should choose one priority sphere and create the conditions for investments from the private capital.

Unfortunately there is no common understanding in Estonia’s national level about development of venture capital market. For example the representatives of EBRD were very surprised at Estonia’s plan to exit from EBRD’s support programmes. EBRD is one of the most important investors in local venture capital funds. FinanceEstonia addressed a request to Ministry of Finance of the Republic of Estonia to reconsider the previously mentioned verdict. Estonia’s role is crucial for developing venture capital. The state can establish an environment that can advance the genesis of market and helps to give a support for developing funds. It is vital to remember that according to the historical legacy, the cultural layer of venture capital market is very thin – so all the efforts from the state level are essential.

What could be the actions in Estonia by the state in order to develop the ecosystem of private and venture capital?

First of all we should create an environment which is habitual and convenient for investors. It means jurisdiction and rules – all European Union directives should be applicable for our environment. It isn’t reasonable to do Estonian version of creating funds. Also the typical fund structure and legislation should apply to in universal level.

The state should develop a continuous programme that creates a new fund of funds over every 4 or 5 years with the magnitude of 50-100 million Euros. That fund would invest into various investment funds among other involved private investors. On the one hand the money inflow is working. On the other hand it shows to investors that the state itself is taking these investments seriously – the state wants to invest and to encourage investors to come along. The fund of funds’ investments are essential because if the state itself is not putting in their share then the private sector wouldn’t do it as well. We are hoping to see other success stories soon – such as Skype and GrabCAD!

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A public-private cluster initiative with the aim of establishing Estonia as a vibrant and innovative location for financial services.